Malaysia stock market and companies daily report (March 05, 2014)

- Petronas president and chief executive officer Tan Sri Shamsul Azhar Abbas expressed caution on companies expanding their fleet oil and gas assets such as offshore support vessels (OSV) and drilling rigs, warning that the charter rates going forward in the domestic markets would come down.

- He said there is an oversupply of OSVs in Peninsula Malaysia for Petronas’ demand, therefore these companies have to expand regionally. Citing a recent tender exercise, Shamsul said the OSV charter rates came in at 15 percent below current market rates.

- Shamsul added that oil majors are presently undertaking a review of projects, and Petronas itself has aborted some of its projects. These companies are waiting for the contracting market to get better before they will embark on those projects.

Significance: Petronas confirmed that it would make its final investment decision this month on the Refinery and Petrochemical Integrated Development (RAPID) project in Pengerang, Johor.

Daya Targets RM950m Fund Raising Exercise

- Daya Materials is planning a very large fund raising exercise comprising of a 15 percent private placement, rights with warrants issuance, convertible bonds and senior debt financing worth a cumulative RM950 million, to pay for the purchase of two offshore subsea construction vessels.

- The subsea construction vessels each cost US$140 million or RM460 million, noted Kenanga IB Research. Daya will be able to save US$15,000 or RM50,100 per day per vessel under an ownership model versus the current lease model.

- Kenanga IB Research also noted that Daya had incurred US$9 million or RM30 million in cost overruns during 4Q13, attributable to human error in capturing costs for its Tapis enhanced oil recovery project. With the project at 96 percent completion as at year end, no more cost overruns are expected in 2014, Kenanga said.

Significance: Kenanga IB Research forecasts Daya to remain in the red in 1Q14 due to its substantial fund raising exercise and cost overruns.

HLIB Maintains “Hold” Call On UMWOG, Target Price At RM4.12

- UMW Oil & Gas Corporation (UMWOG) is expected to be in the spotlight on news that its unit had won an estimated RM148 million support services contract from Petronas Carigali. The contract is for an initial span of two years, with an option of an extension of one year.

- Hong Leong Investment Bank (HLIB) said it took the news positively as UMWOG was the market leader in domestic drilling sector, with strong balance sheet to expand further. The research house said UMWOG is the best proxy to benefit from rigs localisation.

- HLIB is positive on the award as this will help improve the average utilisation rate on the hydraulic workover unit (HWU) below 50 percent to 70 percent in FY14. It estimates the HWU rig alone will contribute around RM37 million for two years with the rest of the contract value from other support services.

Significance: HLIB maintains its “Hold” call and a target price of RM4.12, based on an unchanged 20 times price-to-earnings ratio on FY15 earnings per share of RM0.206.